How Yelp Helps Steer People Away from Fast Food Chains

Have you ever looked to Yelp to find out how the burgers are at the new McDonald's in town? Has an eloquent review for Subway ever talked you out of trying a just-opened location of the franchise? According to a new study by Michael Luca at Harvard Business School, probably not. The study finds that while Yelp can boost the revenues of independent restaurants attract new customers, it doesn't affect chain restaurants at all. If you've ever actually read a Yelp review of a chain restaurant, this might not come as a surprise.

First, let's look the study's findings. By analyzing review data from both Yelp and revenue data from the Washington State Department of Revenue, Luca draws three conclusions about the Yelp effect on restaurants:

(1) a one-star increase in Yelp rating leads to a 5-9 percent increase in revenue, (2) this effect is driven by independent restaurants; ratings do not affect restaurants with chain affiliation, and (3) chain restaurants have declined in market share as Yelp penetration has increased. This suggests that online consumer reviews substitute for more traditional forms of reputation.

Luca adds that people "are more responsive to quality changes that are more visible and consumers respond more strongly when a rating contains more information." These details shed some light on why chain restaurants don't reap many benefits from Yelp reviews. In a matter of speaking, we already know too much about chain restaurants. If you think about it, chains like McDonalds, Subway and Applebee's spend millions of dollars building a unified brand presence. As Eric Schlosser writes in the introduction to Fast Food Nation, these kinds of restaurants rely on "obliterating regional differences and spreading identical stores throughout the country like a self-replicating code." Luca also adds, "Because consumers have more information about chains than about independent restaurants, one might expect Yelp to have a larger effect on independent restaurants."

While that strategy worked well to help grow national and international brands, it's not too suited to the more democratic process of Yelp reviews. A quick look at some fast food reviews on Yelp shows that when everybody already knows the menu and the ambience, people spend more time pointing out what's wrong--what breaks the code:

I love Mickey D's and all, but this place is dirty and putrid, topped with the strong scent of piss. If you're around Shattuck anyway, you wouldn't go here. There's literally 100 other places you can go to that are much better. (One-star review of a McDonald's in Berkeley, California.)

There's also the you-already-know-it's-bad approach:

Subway is subway. A little bit of meat and lots of limp lettuce. This particular subway is very shady. They finally got rid of the bullet proof glass. (One-star review of a Subway in Boston, MA)

Some of those that do write reviews point out how it's a bit futile to review chains at all:

Can't believe I've become so review-happy that I've come as far as reviewing an Applebee's. (Two-star review of an Applebee's in Jersey City, New Jersey)

Restaurants have clearly noticed and are responding to the fact that the push for a unified chain of cookie cutter restaurants isn't working. Starbucks for instance has been building clandestine branches for a couple of years in Seattle. They don't look like Starbucks, they're not called Starbucks and even Starbucks admits that they're trying to skirt around the negative impressions that people might have of their international brand. A company-wide memo reads, "As customers visit our stores, we hope they'll feel a deeper connection to coffee, an enhanced sense of community and a greater level of commitment to environmental consciousness. In short, we hope they'll be inspired." Perhaps so inspired, that they'll write a Yelp review.